South African microfinance company Bayport Management is preparing to make a return to the US dollar market with a social bond offering structured in an unusual way.
The unrated company's potential issue is set to come under Nordic bond documentation that will cater to the needs of regional as well as international investors who are familiar with the recurring issuer, according to a lead.
"We're not targeting the usual Reg S US dollar bond investors. The documentation is quite special and relatively light and we are seeing a trend of more international issuers and investors coming to the market. International investors include different types of asset managers and pension funds," the lead said.
The investor demand for the credit also comes on the back of Bayport's largest shareholders. Swedish investment company Kinnevik has a 24% shareholding, while Helios Investment Partners holds 23% and the South African Government Employees Pension Fund 21%.
Bayport will start investor calls on April 25 to raise up to US$300m from a three-year senior unsecured bond and print a 3.5-year subordinated note with a targeted amount of US$50m, which the lead described as "not that small" and rather common for offerings with Nordic bond documentation. ABG Sundal Collier and DNB are joint bookrunners for the potential deal.
Proceeds will be used to refinance the company's US$260m 11.5% senior social bonds due June 2022 and potentially its US$80m 10.5% subordinated social bonds due December 2022. Both were issued in 2019.
"Investors can roll in to the new bonds and keep their exposure to the credit. The terms are very similar to the existing ones," said the lead.
Bayport chose to issue the bonds with a social label instead of the more prevalent green one because it has greater rarity value, although one ESG banker underlined the importance of the credibility of the structure itself.
"The demand depends on the actual projects that are being financed with clear impacts, not so much on which label the company is using, given that the mass majority of the investor base are able to buy either green or social bonds," said the ESG banker.
Social bonds also suit the nature of the company's business, which is focused on personal finance in Africa and Latin America, where there is limited possibility for individuals to get loans from banks for reasons such as education, healthcare and housing, the lead said.
He said the social label further appeals to the ESG investor base because of the government-controlled funding that Bayport receives. The company has longstanding borrowing relationships with entities including the US International Development Finance Corporation.